Phil Giesler Joins Dialogue on Corporate VC Trends
By Russell Garland
The recession took its toll on corporate investment in venture-backed companies last year, as big businesses looked to conserve cash. But some say that this time around, they're not seeing the same sort of panic that gripped corporate investors after the dot-com bubble.
Only 11% of venture rounds included corporate investors in 2009 versus 13% in 2008, according to an analysis by VentureSource, which like this publication is part of Dow Jones & Co. The latest figures mark the continuation of an ongoing decline in corporate participation in venture rounds since 2000, when corporations were present in 28% of rounds.
The number of corporate rounds, where corporate investors financed a company without VC participation, also has fallen sharply since the heyday of corporate venturing. Last year, there were 40 such financings, the lowest in a decade, according to VentureSource. In 2000, when the entire venture industry was more robust, there were 474 corporate rounds. The numbers have dropped steadily since, save for 2007 when there was a bit of a rebound to 78 corporate rounds.
"It's the first thing that these guys cut off," said Managing Director Gary Rubinoff of Summerhill Venture Partners, formerly the VC arm of Canadian phone company BCE Inc. "It's in my view the wrong thing because you don't want to cut off innovation in times of economic downturn."
VCs have mixed emotions about the decline. With M&A the main exit for the venture industry, VCs depend on corporations to acquire their portfolio companies, but getting them to provide equity financing is far less critical. That could change if the industry takes off again and there is a big demand for follow-on money, but venture investors continue to differ on whether their portfolio companies should take equity investments from corporations, especially early on.
While a corporate connection can help with product development and customer acquisition, it can also limit a start-up's strategic options if the investor is perceived to have too much influence. Many VCs were also put off when corporate investors bailed out after the tech bubble deflated.
For those who do value corporate VC, Phil Giesler, chairman of the corporate venturing group that the National Venture Capital Association formed six years ago, sees some positive signs during the latest economic downturn. Giesler, who is director of innovation at Unilever Corporate Ventures and a member of the Physic Ventures management team, said that although the investment pace has slowed and some corporate venture groups have changed strategy, "We're not seeing the same panic. There's much more maturity."
He thinks a big reason for this is that corporations increasingly are looking outside their walls for growth opportunities. "Growth is so much on corporations' agenda at the moment," said Giesler. While not all of them are looking to venture investments - some are expanding business development - "They are all saying they need new models."
There are also signs that how corporations look at venture investing is shifting, with some saying they are spending more time with early-stage companies. Representatives of Comcast Interactive Capital and Motorola Ventures speaking at a recent conference organized by TheFunded.com, said the old model of corporations providing later-stage financing is largely passé.
The VentureSource data offer some support for this, at least regarding financings involving only corporate investors. Half of the corporate rounds last year went to companies in the product-development stage versus only 27% in 2000. On the other hand, when investing alongside venture firms, corporations more often wait until a company has its product in the market. Of the corporations investing with VCs in a company for the first time in 2009, 55% did so when the company was shipping product.
Intel Corp.'s Intel Capital was the leading corporate investor in the U.S. last year, a crown it held in 2000 as well, although its pace was far slower with participation in 26 venture rounds in 2009 versus 161 in 2000. The second most active last year was the venture arm of Swiss pharmaceutical company Novartis AG, Novartis Venture Fund, with 13 venture deals. GE Energy Financial Services did seven venture deals in 2009, reflecting the importance of clean technology to the venture industry. Newcomer Google Ventures did six deals, placing among the top 10 corporate investors.
